DANGOTE CEMENT PLC FY'19 Earnings release - Still a BUY despite competitive pressures

Still a BUY despite competitive pressures                                                  

Proposes ₦16.00 dividend on ₦11.79 EPS

Recently, Dangote Cement PLC released its FY’19 results, reporting a 17% y/y jump in PBT to ₦250.5 billion, 5% behind our estimate. However, after accounting for a tax expense of ₦50.0 billion in 2019 versus a tax credit of ₦89.5 billion in 2018, PAT dropped 49% y/y to ₦200.5 billion (Vetiva: ₦202.3 billion). Despite the fall in PAT and EPS, the board of directors proposed to retain FY’19 dividend at ₦16.00 (FY’18: ₦16.00, Vetiva: ₦10.09), representing a payout of 136% and yield of 9%.                    

 Expect mild growth in PAT as competitive pressures remain

Driven by improvements across both the Nigerian and Pan African businesses, we forecast a 7% y/y growth in Group volumes to 25.1 million MT in FY’20, translating to a 5% y/y growth in Group Revenue to ₦933.6 billion. With competition unlikely to let up in Nigeria and pricing challenges expected to remain in South Africa and Zambia, we expect further pressure on EBITDA margin, taking FY’20 margin 30bps lower to 44.3%. However, given the larger topline, FY’20 EBITDA is expected to grow 5% y/y to ₦416.6 billion. With DANGCEM signaling an intent to increase debt levels, we expect Net finance cost to remain flat around ₦51.2 billion, taking PBT 6% higher to ₦264.9 billion and PAT 3% higher to ₦206.6 billion. We estimate a 12-month TP of ₦199.06 and maintain a BUY rating on the stock.